In 2012, police spotted London venture capitalist Stefan Glaenzer acting erratically on a metro platform. He was lurching around, high out of his mind, when he boarded a crowded train and rubbed his groin against a woman standing inside. After his arrest, Glaenzer, the multimillionaire former executive chairman of the online music service Last.fm Ltd ., apologized and pleaded guilty to sexual assault, which set him on the U.K.’s sex offender registry.

Glaenzer.

Photographer: Getty Images

Three years later, Glaenzer asked the taxpayer-funded British Business Bank Plc to invest in his venture firm, Passion Capital. The bank, which previously money Glaenzer a year before his arrest, had been trying to nurture the country’s technology the enterprises and decided that his successful business record outweighed the incident. With an investment of PS17. 5 million ($ 23.1 million today ), the U.K. government became one of Passion’s biggest investors.

That was before a wave of abdications from other firms by prominent American VCs who were serial sex harassers , none of whom were arrested. Passion is creating fund for a new fund, say people familiar with the issues, and while Glaenzer hasn’t been accused of anything since 2012, his record is complicating those efforts. European firms such as Passion depend heavily on government investment, and members of the U.K. industry are calling for a ban on government funding for VCs with a record of sexual assault, harassment, or discrimination.

The government’s 2015 investment in Glaenzer’s firm sent a signal that it didn’t care about his crime, says a London VC who, like 10 other entrepreneurs and investors, spoke on condition of anonymity to safeguard against reprisals from the bank or the firm. The British Business Bank declined to say whether it would contribute to Passion’s new money, but said in a statement that it” does not take the matter of sexual assault softly, and the issue in question was considered extremely carefully .” Glaenzer and his firm declined to comment for this story.

Glaenzer’s case exemplifies a broader debate about what role major backers of VC firms–the behind-the-scenes investors known as limited partners–should play in policing bad behavior. LinkedIn co-founder Reid Hoffman has urged investors to deepen their background checks, and a U.S. industry group, the Institutional Limited Partners Association, is drafting tougher guidelines. In the U.K ., where funding is much tighter, investors such as Glaenzer have outsize influence and are tough for hungry startups to avoid.

” Asking for fund from a small roomful of mostly male VCs can be an intimidating experience at the best use of hours ,” Caroline Plumb, the founder of London business-software startup Fluidly, said in an email. Backing Glaenzer’s fund doesn’t reflect the British Business Bank’s stated priority of improving women’s access to capital, she adds. Toby Coppel, a former Yahoo! executive who co-founded Mosaic Ventures in London, says there are plenty of other promising funds the bank could invest in, including several started by women in the past two years.

Passion, however, enjoys a close relationship with U.K. policymakers. Two months after the British Business Bank invested, Eileen Burbidge, one of the other expending partners, became chair of Tech City UK, a government-backed effort to promote the nation’s tech industry. Burbidge, a fixture on the startup conference circuit who advocates for female entrepreneurship, declined to comment.

” It is always a dilemma to balance accountability with redemption ,” says Jill Levenson, a professor of social work at Barry University in Miami who studies sex crimes. She says governments need to send clear messages that sexual assault won’t be tolerated but adds,” All people who engage in such an act are not the same .”

Glaenzer’s advocates , none of whom would speak on the record, say his arrest was an isolated, out-of-character incident for which he’s been duly penalized and that he’s being unfairly associated with a separate debate about industry sexism. Those who’ve worked with Glaenzer say he’s never acted inappropriately in that context, unlike VCs such as Justin Caldbeck, who constructed unwanted advances toward women who asked him to invest in their companies.( In June, Caldbeck recognise the behaviour and resigned from the firm he co-founded .)

The girls speaking out about sexism and harassment in the tech world this year have driven those in Europe to push for greater accountability. Along with a ban on government funding for VCs convicted of sex crime, some are calling for the government to make it easier to report sexist behaviour to the agency that licenses investors. Vivi Friedgut, founder of online learning company Blackbullion, says a VC told her she’d have” more luck fundraising with a male co-founder .” Other women who’s started two companies remembers being chided by a male VC for becoming pregnant after he invested.( The investor then met with her co-founder, trying assurances that she wouldn’t get pregnant, too .)

Colette Ballou, the founder of a PR firm that works with tech companies in Europe, says she’s been harassed several times and has begun investing in venture firms as a style to push for change.” I have insured the abuse, and I’ve experienced sexual harassment ,” she says.” I can’t change it any other route than become an LP and hold them accountable .” —